Musing on yoga, wellness and living a healthy, happy life

October 02, 2014

Will Increased Taxes Put Yoga Studios Out of Business?

Well +Good recently published an article about a yoga studio in New York fighting to keep their yoga teachers as independent contractors instead of employees. Yoga Vidya, a yoga studio in New York, is fighting the results of an audit from 2006-2008 taxes which stated that they owed back taxes on teachers that should have been filed as employees. Yoga Vidya is appealing because they do not want the state to set a precedent that may result in new regulations that would force all studios to file teachers as employees. If studios are forced to file teachers as employees, they will be forced to pay employment taxes and provide unemployment insurance. Many people feel that this will break yoga studios and many will be forced to close.

“It is extremely serious for New York state yoga studios. If this case is not heard and won on appeal, it’s going to set an incredibly bad precedent,” says Yoga for NY founder and owner of Yoga Union Alison West. “It really will put a lot of studios out of business.”

The case she’s referencing is popular downtown studio Yoga Vida’s, and it concerns whether the state should require all yoga teachers be paid as employees rather than independent contractors (or freelancers), the latter of which is the way most studios—especially small ones—currently classify them. If studios were forced to do this, owners say the costs of providing unemployment insurance and worker’s compensation for every teacher on the schedule would be prohibitive.

After a lengthy process that began in 2010, Yoga Vida owner Mike Patton has arrived at the highest appeal level and is waiting to find out whether the appeal board will grant the case a hearing or will simply issue a written decision. And the state has indicated, in some instances, that the final outcome of this case will be used as precedent in others, making its significance greater.

When auditors look at whether a worker should be paid as an employee or independent contractor, they try to determine whether the employer exercises “control” over the worker (or if the employee has complete “control” over their own business). In many cases, yoga studios do exert control—if they require teachers to teach a specific method, for example, or only allow them to teach at their one studio or require them to attend meetings—and in these cases, they should be paid as employees.

But West says the state uses measures that don’t make sense in the yoga world to determine whether teachers “control” their own business. For example, she says, they ask teachers if they bring their own “tools” to teach, and since teachers say no, that the studio provides mats and blocks, the state uses that as evidence that they are not independent. (Maybe teachers could start having Uber SUVs full of Manduka mats follow them around?)

And in Patton’s case, the state used the fact that he said “he would personally address instructors regarding their manner of instruction if it posed a risk of injury to the students” as evidence he was in control of teachers. Monitoring the safety of his clients was considered “controlling” teachers.

Plus, Patton explains, a blanket ruling would force him to pay a traveling teacher who teaches one handstand workshop a year at Yoga Vida as an employee. If a teacher teaches two classes a week at five different studios (a common scenario in New York) and picks up and goes to India whenever he or she wants, they’d still have to be on the payroll at all five studios. “They are literally going to run studios into the ground, so the so-called protection of employees is going to result in the lack of employment for yoga teachers,” West says.

“Other industries aren’t required to do this, so how could they do this to our industry?” Flynn says. (Photo: Laughing Lotus)

The cost?

Patton estimates that paying every teacher as an employee would force him to raise class prices 10 to 15 percent, which could definitely affect business. And an even bigger issue is looming: If during studio audits the state decides studios have been paying their teachers incorrectly, it often slaps them with a bill for unpaid unemployment insurance spanning a huge chunk of time.

Laughing Lotus owner Dana Flynn is still fighting the results of an audit from 2006–2008, which determined that many of her teachers she considered independent should have been classified as employees. She was hit with a bill upwards of $25,000, a sum that she says her business didn’t exactly have ready in the bank. “Right now it’s a problem, and we’ve got to find a solution,” she says.

My Thoughts

We opened Pandora's Box: When we took the spirituality out of yoga and focused more on profit and fitness, we opened up the Pandora's box that would allow this and the DC Yoga tax, which recently passed, to happen. The IRS, and everyone else who seeks to regulate yoga, are seeing dollar signs. When they see that yoga is a multi-billion dollar industry, they want a piece of it. Those of us who teach or own yoga studios know that a huge chunk of this money is going to yoga apparel companies,however, those companies are already taxed to the possible highest level under the law. However, there is still more money to be had from yoga studios through taxation.

This Model Would Spell Big Changes For How Yoga Studios Do Business- the extra cost could break the smaller yoga studios causing them to close. Big studios could survive but prices would need to increase. They would most likely have to either A. keep employee hours low and have more teachers or B. Cut back on teachers and have a few teaching everything.

This could also cut down on the number of new yoga studios entering the market which may raise demand for yoga and make up for the difference in cash flow going out to the IRS.

Fewer Choices For Yoga Students

Main Stream Studios Would Be King- the small yoga studio that teaches more esoteric less popular styles of yoga may close and leave only big box yoga studios that stay with more main stream work out based practices.

It may also take yoga back to its roots- We may see the resurgence of small classes taught in people's homes or church basements by a few extremely dedicated individuals.

Yoga teachers would get more benefits but it may be harder to find a job

What do you think about this issue? Should yoga studios pay employment tax?